The Bank of England on Thursday, December 19, as part of its last monetary policy meeting this year, decided to keep interest rates at the same level.
The mentioned decision of the central bank of the United Kingdom is largely because inflation in the country has increased to an indicator which is an eight-year high.
It’s worth noting that analysts interviewed by the media predicted that the UK financial regulator at its last meeting in 2024 would not make changes in the cost of borrowing. In this context, it was noted that policymakers are concerned about stubborn inflation in the service sector and wage growth.
This year, the central bank of the United Kingdom cut its key rate from 5.25% to 4.75%.
It is worth noting that three members of the Monetary Policy Committee voted on Thursday to lower the cost of borrowing. At the same time, six members of this committee supported holding the indicator at the same level.
After it became known about the Bank of England’s decision on interest rates, the pound pared gains against the dollar, trading 0.25% higher.
In a statement by the central bank of the United Kingdom, it was noted that the growth of headline inflation in the country to 2.6% in November was higher than preliminary expectations regarding the dynamic of the corresponding indicator. Also, the UK financial regulator underlined that inflation in the service sector continues to be elevated.
The staff of the Bank of England also revised its forecast for economic growth in the United Kingdom in the fourth quarter of 2024. Now they don’t expect growth. In November, a forecast was released according to which the gross domestic product (GDP) of the United Kingdom will increase by 0.3% in the fourth quarter of 2024.
It is worth noting that in recent months, the UK has seen economic growth indicators that are weaker than preliminary expectations. In October, the country’s economy unexpectedly contracted by 0.1%.
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said in a media commentary about holding rates that the split vote decision and the dovish tone of the minutes indicate that the move to lower borrowing costs in February is very much in play. Also, according to the expert, the central bank of the United Kingdom risks backing itself into a corner over the pace of monetary policy easing, since inflation is likely to rise, the timing of the future cutting of interest rates may become increasingly difficult, especially if concerns about stagflation become a reality.
Matthew Ryan, head of market strategy at Ebury, commenting on the decision of the UK financial regulator made on Thursday, said that Bank of England officials seem to have more than ever disagreed on monetary policy.
As we have reported earlier, Fed Cuts Interest Rates by Quarter Point.